Los Angeles, Displacement, and the Rise of Airbnb

Alex Scott2019 UCLA School of Law JD Candidate; Critical Race Studies Specialization; interested in labor and employment law

Introduction

The purpose of this piece is to examine the way in which short-term rental (STR) services contribute to gentrification in Los Angeles. To that end, this piece will provide a working definition of gentrification, with an emphasis on tourism as a specific form of gentrification, and will describe how Airbnb and other similar services have accelerated the process by which tourism-caused gentrification transforms neighborhoods and creates displacement. Finally, this piece will conclude with a summary of Airbnb’s impact on Los Angeles’ housing market.

I. Gentrification

Gentrification is the process by which neighborhoods are transformed, such that neighborhoods that once housed and catered to a predominantly poor or working-class population receive an influx of middle- and upper-class residents, which creates a corresponding transformation of the amenities and consumption options available in that neighborhood.1 It is the process through which formerly downtrodden working-class neighborhoods are transformed into upper-middle-class enclaves, and by which existing local businesses frequented by the area’s longtime residents are replaced by ones aimed at the area’s newer, richer residents.2

Gentrification’s origins lie both in the consumption and lifestyle habits of the postindustrial middle class, which preferred the leisure and cultural activities associated with city-living, as well as structural conditions that incentivize capital investment in cities.3 As investment opportunities in the suburbs decreased and became less profitable, land developers began looking toward the cities as new sites of profit-making, thus setting off an investment boom in American cities that has led directly to the housing crises of today.4

Both processes—the consumption habits of middle-to-upper class professionals and structural incentives for capital investment in poor neighborhoods—create conditions that lead to the displacement of the area’s previous inhabitants.5 The influx of wealthier residents and capital investment raises property values and creates businesses that are more expensive than those previous. This creates the sense that the neighborhood no longer belongs to its working-class residents as it becomes progressively more expensive. As property value continues to rise and affordable local businesses are replaced with expensive venues and shops, more and more of the area’s original residents are forced to move out. This is known as direct displacement.6

Before this occurs, the increasing hostility of the neighborhood towards its original residents results in indirect “displacement pressures,” which undermine the well-being of such residents.7 Indirect displacement pressures include the increasing measures residents must take to meet rising rent requirements, and the sense of loss that comes with a neighborhood that no longer feels like home.8 These pressures increase until residents reach their breaking point and decide to leave. The result is a neighborhood that is almost completely populated with middle-to-upper class residents—one that is unwelcoming to its few remaining poor residents.

Public policy plays a large role in the gentrification of neighborhoods. An ideological shift has occurred in the last few decades concerning the role of the government in interacting with the market. As opposed to the Keynesian welfare state that proceeded it, neoliberal governance works to create the conditions that allow markets to thrive, including removing any barriers preventing markets from expanding into new areas.9 Neoliberal governance has resulted in decreased funding for cities, forcing them to target high-income residents and consumers to generate tax revenue.

Against this backdrop, cities view privatization of services previously provided by local government as increasing competition and driving down unnecessary costs. As such, cities have tended to pursue redevelopment of public housing complexes, leading to an overall decrease in housing that is accessible to working class residents. For example, the City of Los Angeles is currently redeveloping the Jordan Downs housing project into a mixed-income “urban village.”10 Gentrification—oftentimes euphemistically referred to as “revitalization”11—is not merely an unfortunate outcome of local policies, but an intended one: A neighborhood inhabited by rich residents and populated by upscale venues (or, increasingly, empty luxury housing units owned by the ultra-rich)12 generates far more tax revenue than the poor neighborhood it replaced.

II. Tourism Gentrification

Tourism has long been recognized as creating a specific kind of gentrification.13 In recent decades the tourism industry has grown exponentially, and tourists no longer primarily confine themselves to tourism bubbles or other areas specifically designed for tourist consumption by the tourism industry.14 This is due to the relatively new phenomena of urban tourism, in which tourists seek to consume the authentic experience of living in a city and as such seek out local culture and the everyday experiences of middle-class city residents.15 In doing so, they create demand for consumption options—such as shops, cafes, and bars—that cater to them and are attracted to areas that feature such amenities.16 Gentrification thus makes an area more attractive to tourists.

In addition, the promotion of tourism in an area may eventually lead to increased demand for housing, also leading to gentrification.17 Both tourists and gentrifiers are equally important to modern postindustrial cities’ ability to raise revenue in that both are exactly the type of “middle-class users of urban spaces” that city governments are increasingly concerned with attracting.18 The arrival of tourist visitors to an area “stimulates real estate markets and . . . tends to accelerate a displacement process already initiated by the arrival of gentrifiers.”19

The recent rise of short-term rental services such as Airbnb, which provides a platform for property owners to rent out rooms or entire houses or apartments for short periods of time, can be seen as a result of the growth of urban tourism. Such services make it easier for tourists to procure vacation housing in the areas they wish to visit and experience. In addition, by allowing tourists to live in the houses and apartments of local residents, Airbnb allows visitors to more fully experience living as a local resident. The proliferation of such rental services can be understood as a new factor that contributes to tourism gentrification, accelerating a process of neighborhood transformation and displacement that was already underway.

Studies have found that STR services such as Airbnb increase gentrification.22 Airbnb, by facilitating the use of housing as a tourist accommodation, leads to a decrease in housing stock, causing housing prices to rise, which in turn makes it more difficult for residents to reside in their current accommodations, at times resulting in displacement.23 Studies have also found that most STRs are supplied by companies and landlords renting out entire properties on a permanent basis, rather than the image associated with Airbnb of property owners renting out spare rooms in the houses they live in.24 As a result, the majority of STRs provided by services such as Airbnb result in a reduction of available housing stock and, as such, contribute to processes of displacement. In addition, it is likely that Airbnb and similar services also increase gentrification by making it easier for tourists to live in desirable neighborhoods, therefore increasing tourist demand for consumption activities.25

IV. Airbnb in the City of Angels

Los Angeles is experiencing a severe housing crisis, which has led to skyrocketing rents, displacement, and a rapidly growing homeless population.26 Short-term rentals are currently illegal in Los Angeles, as property owners are not allowed to rent out their property for fewer than thirty days at a time unless they are running a licensed and regulated bed and breakfast facility.27 In spite of this, Airbnb rentals have become widespread throughout the city, and the number of housing units rented on Airbnb increases every year.28 A study published by Los Angeles Alliance for a New Economy (LAANE) in 2015 found that there were 8400 Airbnb hosts and 11,401 Airbnb units listed for rent in the city.29

Like in many other cities, Airbnb has had a negative effect on the Los Angeles housing market from the perspective of renters. The majority of Airbnb hosts are not people simply renting out spare rooms on their property. Instead, LAANE found that 64 percent of all listings in Los Angeles were for whole units, meaning that the entire apartment or house was available to rent.30 Listings for private or shared rooms in a property occupied by the host made up the remaining 36 percent of listings.31 Lessors with whole units also make up a disproportionate share of Airbnb’s revenue, contributing 89 percent of Airbnb’s revenue from Los Angeles.32 LAANE also found that 35 percent of Airbnb revenue in Los Angeles comes from hosts renting out two or more whole units.33 These hosts, which they termed “leasing companies,” only made up 6 percent of all Airbnb hosts in Los Angeles.34 The study found that one such leasing company, Global Homes and Condos, operated seventy-eight units in Los Angeles.35

Whole-home rentals and leasing companies operating multiple units are so prevalent in Los Angeles because it is more lucrative for property owners to operate STRs than it is for them to rent to Los Angeles residents. According to LAANE, twenty-one units of rent-controlled apartments would net their landlord around $200,000 in annual income, while the same units could bring in over $477,000 a year if they were converted into Airbnb units, assuming they had an occupancy rate similar to those of nearby hotels.36 The financial incentive to operate a short-term rental might lead to evictions: A 2017 study found a strong correlation between Ellis Act evictions and the number of Airbnb listings within a neighborhood, indicating that at least some people in those neighborhoods were likely evicted to convert that unit into an Airbnb rental.37

Airbnb listings are not evenly distributed across Los Angeles County. Instead, nearly half of Airbnb’s listings are located in just seven neighborhoods in Los Angeles: Venice, Downtown, Miracle Mile, Hollywood, Hollywood Hills, Echo Park, and Silver Lake.38 These seven neighborhoods house just 8 percent of the city’s residents but are some of the city’s most expensive areas to live and popular tourist destinations.39 By taking needed housing units off the market in those neighborhoods, which have near-zero vacancy due to high demand, Airbnb has created supply shocks that have caused rent increases.40 While Airbnb has been found to contribute only slightly to overall rent increases across the city, it has a much greater impact on rent inflation in the neighborhoods where it is most prevalent.41 In addition, Airbnb has gentrifying effects on surrounding neighborhoods as middle-income residents are displaced and forced to move into adjacent lower-income neighborhoods.42

It is clear that Airbnb is having a significant effect on Los Angeles’ housing market and is contributing to the housing crisis. The city has made moves to regulate short-term rentals recently: The Los Angeles City Council voted unanimously in May this year to approve proposed regulation of short-term rentals.43 The ordinance would legalize short-term rentals in Los Angeles but would place limits on the number of days a unit can be rented, and it would bar people from renting out housing units that are not their primary residences.44 It remains to be seen if these regulations will restrain Airbnb’s impact on the housing market; some cities have regulated short-term rentals only to find that its gentrification and displacement continue unabated.45 Nevertheless, it is clear that people have taken notice of the impact Airbnb is having on Los Angeles neighborhoods, and are beginning to act.

[1] Agustin Cocola-Gant, Struggling With the Leisure Class: Tourism, Gentrification and Displacement 13–21 (Feb. 2018) (unpublished Ph.D. dissertation, Cardiff University), https://orca.cf.ac.uk/109288/19/A-Cocola-Gant-PhD-Thesis.pdf. Cocola-Gant’s thesis synthesizes research on tourism and gentrification and uses this framework to analyze tourism gentrification in Barcelona. I relied on his piece both for the breadth of existing literature and its conceptual clarity.

[11] For example, the construction of the High Line in New York, an abandoned elevated railway line converted into a public park, was accompanied by city rezoning of the surrounding West Chelsea area for luxury development. This illustrates that the city anticipated that the park would create increased demand for consumption and housing options in the surrounding area, and sought to capitalize on this. This resulted in rapid gentrification. See Jeremiah Moss, Disney World on the Hudson, N.Y. Times (Aug. 21, 2012), https://www.nytimes.com/2012/08/22/opinion/in-the-shadows-of-the-high-line.html.

[12] A report made by the UN Special Rapporteur on Adequate Housing found that, due to the increasing financialization of housing, many investor-owned homes are left empty. This is because housing’s profitability has become increasingly detached from its social usage. As the report points out, this has resulted in a situation where “[h]omes sit empty while homeless populations burgeon.” Leilani Farha (Special Rapporteur on Adequate Housing), Report of the Special Rapporteur on Adequate Housing as a Component of the Right to an Adequate Standard of Living, and on the Right to Non-discrimination in this Context, U.N. Doc. A/HRC/34/51 (Jan. 18, 2017), https://documents-dds-ny.un.org/doc/UNDOC/GEN/G17/009/56/PDF/G1700956.pdf.

[21]Id. at 33–34; see also Gotham, supra note 13, at 1107–08. As Gotham explains, “[t]he demographic and population transformation of the Vieux Carre [French Quarter] coincides with a dramatic restructuring of the commercial base of the neighborhood” such that “souvenir shops are [now] the most prevalent retail business in the area.”

[24] For example, in a report about Airbnb’s economic impact released on its blog, Airbnb described its Berlin hosts as “regular people who occasionally rent out their homes and use the income they earn to pay the bills.” Airbnb Economic Impact, Airbnb, https://blog.atairbnb.com/economic-impact-airbnb/ (last visited Sept. 16, 2018).

[26]See Gale Holland, L.A.’s Homelessness Surged 75% in Six Years. Here’s Why the Crisis Has Been Decades in the Making, L.A. Times (Feb. 1, 2018, 3:00 AM), http://www.latimes.com/local/lanow/la-me-homeless-how-we-got-here-20180201-story.html.

[27] Emily Alpert Reyes, L.A. Lawmakers Back New Regulations on Airbnb and Similar Rentals, L.A. Times (Apr. 10, 2018, 8:50 PM), http://www.latimes.com/local/lanow/la-me-ln-rental-rules-20180406-story.html. A bed and breakfast is a lodging, often a private family home, that offers overnight accommodations and breakfast services.

[28] There are several possible reasons why Airbnb rentals have proliferated in spite of their illegality, including difficulty enforcing the city’s short-term rental laws, lack of political will, and lack of data-sharing between Airbnb and the city. See Emily Alpert Reyes, Residents Want L.A. to Do More to Enforce Short-Term Rental Regulations, L.A. Times (Sept. 26, 2015, 2:00 AM), http://www.latimes.com/local/california/la-me-airbnb-teeth-20150926-story.html.

[35]Id. at 10–13. Following the publication of the report and pressure from grassroots activists, Airbnb removed many of the biggest commercial lessors from the site. However, a follow-up study conducted by Los Angeles Alliance for a New Economy (LAANE) nine months later found that the leasing companies increased their share of total Airbnb revenue in that time. See Roy Samaan, LAANE, Short-Term Rentals and L.A.’s Lost Housing 2 (2015), https://www.laane.org/wp-content/uploads/2015/08/Short-Term_RentalsLAs-Lost_Housing.pdf.

[43] Howard Fine, L.A. City Council Passes Short-Term Rental Rules, L.A. Bus. J. (May 2, 2018), http://labusinessjournal.com/news/2018/may/02/l-city-council-passes-short-term-rental-rules/. The draft ordinance must be reviewed by the Planning Commission before the City Council can vote it into law. Id.

[45] For example, New Orleans regulated short-term rentals effective 2017, yet a study published in March of this year found that STRs continued to negatively impact New Orleans’ neighborhoods. See DeDecker et al., supra note 22.